Environmentally sustainable economic development building on Brundtland

gNvoo'f THE WORLD BA,NK SECTOR POLICY AND RESEARCH STAFF Environment Department "Environmentally Sustainable Economic Development Building on Brundtland" Compiled and Edited by Robert Goodland, Herman Daly and Salah El Serafy July 1991 Environment Working Paper No. 46 This pape has been prepared for internal use. The views and itetpretations herei are those of the authot(s) and should not be atributed to the World Bank, to its afiliated organizations Or to any individual cting on their behalf.  PREFACE We are delighted to be invited to preface this book for four reasons. First, because it sets a realistic and fair stage for the important UNCED 1992 conference. Second, because it acknowledges much more development is needc4 in the South. Third, because that needed development and growth must be accommodated by the North. Fourth, burdensharing or reparation for the North's historic overuse of global environmental functions - both as source of natural resources and sink for wastes -- is firmly accepted by the almost entirely Northern authors. Ths is refreshing. We have not been too encouraged by the North's reaction to the Brundtland report over the four years since its publication. Therefore, we warmly endorse the clear thinkdng expressed in this book The fact that two Nobel laureate economists are among the auttors (Haavelmo and Thbergen) raise our hopes that economists will raise sustainability higher on their agendas for serious work in the 1990X We ully share the authors' view that the transition is urgent and we find their suggestions on how to achieve it to be senusble. Now the difficult part, mustering the politcal will, is up to us and our UNCED '92 colleagues. Emil Salm Jose Lutenberger ILE The Minister of State for Environment and Population, The Honorable Emil Salim, Jakarta, Indonesia, and L.E. lThe Secretary of State for Environment, The Honorable Jose Lutzenberger, Brasilia DF, Brazil Departmental Working Papes ame not formal publications of the World Bank They represent prelminaiy and unpolished tests of countty analsil or rsearch that are cirulated to encourage disuon and comment; dtation and the use of such a paper should take acwount of its provisional chamecter. The fings interpretations, and condusions expressed in this paper are entirely those of the authors' and should not be attributed in any manner to the World Bankl Its affliated orgnizations or to members of its Board of 13ecutlv Direct or the the countries the represent.  CONTEN1 Emi Salim and Jose Lutzeberger bmUm 1 Chas 1. The case that the world has reached lmits S Robert Goodland 2. From empty-world to full-world econmis: Recogning an historical trnig point in ecomomic development. 18 Heaman Daly 3. On the strategy of hig to reduce economic inequality by pfang the sale of human acthit. 27 rge Haave}mo and Stein Hanen 4. GNP and market prices: wrong signals for sustainable economic succes that mask einn desucon. 36 Jan Tibergen and Roefle Hucting 5. Sustainability, income meaurement and growth 43 Salah ElSerat 6. Project Evaluadon and Sustainable Development 54 Raymond Mikesell 7. Sustainable development: the role of investment 61 Bernd von Drste and Peter Dogse & The ecological effects of sustainabilit!r. Investing in natural capital 72 Robert Costanza 9. Prom growth to sustainable development 80 Lester Brown, Sandra Postel and Christopher Flavin  About tbh Authr Lest R. Bro, Sanda Pstl and Chrisopher Flavin are President and Vice Presidents for Research, respectively, of the Worldwatch Institute, 1776 Massachusetts Avenue NW, Washington DC 20036, USA; Parx 202J7365. Founded in 1974, Worldwatch, a public policy research organztion, is devoted to anabzing global trends with the aim of promoting a sustainable world aconomy. Robcat <t_ President and founder (in 1987) of the International Society for Ecological Economics, Editor in Chief of the journal Ecological Economics, and editor of the 1991 Columbia University text of the same name. PO Box 38, Solomons MD 20688, USA; Fa3011326-342 H~ermai *. Author of many works on ecological economics including "Steady State Economics' (Freman ;974; second edition 1991); Senior Economist, Environment Department, The World Bank, Washington DC 20433, USA. The most recent amplification of his ideas is "For the Common Good" with John Cobb, Beacon Press 1989; Fax: 202V477-0565. Slah El Serfy Economic Adviser, Economic Advisory Staff, The World Bank, Washington DC 20433, USA; awarded an Oxford doctorate under Economics Nobellist the late Professor Sir John Hicks; led the Bank into Environmental Accounting and published the book of the same title in 1989; Fax 202/477-1569. Robet Goodamd: Environmental Advisor, Environment Department, World Bank, Washington DC 20433, USA; published 14 books mainly on tropical ecology, the most recent being "Race to Save the Tropics" (Island Press, DC 1990); Fax: 2021477-0565. Ttygve Haaelmo and Stein Hme Respectively, the 1989 Economics Nobellist, partly for founding econometrics, Institute of Economics, University of Oslo; and Director, Nordic Consulting Group A.S. Oslo, Omev 46A, N-1340 Bekkestua, Norway, Fx: 472-247-856, Consultant to NORAD, The World Bank, Asian Development Bank, UNESCO and others, latest amplification of ideas: "Economic policies for sustainable development." ADB, Manila, 1990. Raymond MleV: Professor of Economics at the University of Oregon, Dr Mikesell assisted Harry Dexter White from 1942 to 1946 during the furmaiikn uJf 'lle 'Wouidd Banu and IM1 paricpated in the 1944 Bretton Woods Conference. He has published extensively on trade and development economics and on the economics of natural resources. He has published twenty-fours books, including four published by Resources for the Future, Inc., and one by the National Bureau of Economic Research. Jan Thbrge and Roefie Hueting Jan Tinbergen was awarded the first Nobel Memorial Prize in economics in 1969, and was elected the first Chairman of the UN Committee on Development Planning, of his many works, especiafly relevant here are his 1968 "Development Planningn, and his 1968 "Income Distnbution". Roefie Hueting, Head, Environmental Statistics, Netherlands Bureau of Statistics,has been publishing on ecological economics since the 1060s; main work "New Scarcity and Economic Growth" 1980, North-Holland Publishing Co. Fax: 31170/3877-42. in  BRen4 v Dr1te and Pet Dop: Respectvely, Director of UNESCO's Dision of Eoological Siences and Seetary of the UN Man and Biosphere Programme, Associate Eport UNESCOs Division of E3cologcal Sciences. Among their moxt recnt publications I the 1991 "Debt-for-Natwe Exchanges and Biosphero Resr . 7 Place de Fontenoy, 75700 Pars, Fax: 331/4065-9897. Fax 331/4065-9897. hv  INThODUCIION This book is our contribution to the United Nations Conference on Environment and Development to be held in Rio de Janeiro in June 1992, and which builds on the trailblazing work of the Brndtlani Commission. Right at the outset, we want to acknowledge our major debt to the Brundtland Commission's 1987 report, "Our Common Future". In particular, we greatly admire the Commission's achievement in garnering political consensus on the need for sustainable development. We use this report as our springboard, although we are far less comprehensive. Of the four elemeats of environmental sustainability -- poverty, population, technology, and lifestyle -- we focus on only lifestyle, technology and population, with that order of emphasis reflecting our skills. Poverty is only dealt with via our suggestions for a more equitable intemational income distribution. We acknowledge, however, that poverty and alrs debt are for some countries more pressing than environment. Our aim is to follow Brundtland's lead on the need for a rapid transition to sustainability. We bolster Brundtland's case for the transition, because we feel that the need for this transition is not yet adequately recognized. We then go on to suggest specifics of what is needed to achieve the transition. We eave to othters the more important task, namely how to implement the transition; how to muster the political will for changes which will be painful, but essential. We feel that understanding the necessity and general direction of the transition is a precondition for mustering the political wilL All authors have read and discussed each other's chapters and have reached consensus that the contributions included in this volume are not only compatible with each other, but also mutually reinforcing. We collaborated fist because we felt that we were all already thinking along similar lines, judging from our previous writing And second, because we all feel strongly that the next step for the transition to sustainability is agreement on the implications of what Brundtland advocated. We have deliberately retained a certain overlap between some chapters in an effort to stress the notion that, irrespective of the direction from which the subject is approached, the same conclusion is reached. The conclusion is that economic activity cannot proceed any longer under the banner of "business as usual." Specifically it is no longer tenable to make economic growth, as conventionally nerceived and measured, the unquestioned objective of economic development policy. The old concept of growth, which we designate "throughput growth", with it- reliance on an ever increasing throughput of energy and other natural materals cannot be sustained, and must yield to an imaginative pursuit of economic ends that are less resource intensive. The way we undervalue natural capital services and fail to account for natural asset degradation often means that we are impoverishing ourselves while imagining that our economies are growing. The new approach requires a concerted effort at remolding consumer's preferences, and steering wants in the direction of environmentally benign activities, while simultaneov,sly reducing throughput per unit of final product, including services. Earlier studies of environmental limits to growth emphasized the source limits (depletion of petroleum, copper, etc.). Experience has shown, however, that the sink constraints (greenhouse, 1  ozone depletion, local air and water pollution, etc.) are the more stringent. Since sink functions are common property to a greater extent than source functions, this overuse is less correctible by the automatic market adjustment. Acceleration of technological development is therefore required to reduce the natural resource content of given economic activities. We feel this important acceleration can be achieved in a way that will satisfy both the optimists as well as the pessimists. We suggest substantially increased taxes on throughput (such as carbon emission or mineral severance taxes). MTis should please the optimists because it will accelerate new technologies. It will please the pessimints because it will reduce environmentally stressful throughput. Since we must tax something in order to raise needed public revenue, why not tax the things we want to reduce (pollution and depletion) rather than the things we want to increase (employment and income)? Because pollution and depledion can never be reduced to zero there is no danger of taxing our source of revenue out of existence, no matter how high the tax rate. As we gain revenue from these environmental taxes we can ease up on income taxes, especially on low incomes, even to the extent of using some of the new revenues to finance a negative income tax on very low incomes. We urgently call for fmdamental changes in our economic objectives, as well as in our modes of behavior. Towards this end, the cooperation of all manind is necessary. Brundtland's call for sustainable development has elicited two opposing reactions. One is to revert to a definition of sustainable development as "growth as usual", although at a slower rate. The other reaction is to define sustainable development as "development without growth in throughput beyond environmental carrying capacity. WCED leaders (Brundtland 1989, McNeill 1990) seem themselves to be torn between these two directions for operationalizing their concept. Tvwo realisms confict. On the one hand, political realism rules out income redis. -oution and population stability as politically difficult, if not impossible; therefore the world economy has to expand "... by a factor of five or ten ...." in order to cure poverty. On the other hand, ecological realism accepts that the global economy has klready exceeded the sustainable limits of the global ecosystem and that a five to tenfold expansion of anything remotely resembling the present economy would simply speed us from today's long run unsustainablity to imminent collapse. We believe that in conflicts between biophysical realities and political reaIi,ies, the latter must eventually give ground. The planet will transit to sustainability: the choice is between society planning for an orderly transition, or letting physical limits and environmelAtal damage dictate the timing and course of the transition. While we agree with Brundtland that we should seek to limit, arrest or even reduce the throughput associated with economic activity, we are far less sanguine about our ability to achieve this quickly. The vast expansion in economic activity projected b Brundtland is therefore bound to be associated with major rises in throughput. This does not involve any difference in theory between Brundtland and ourselves, but merely reflects the observable fact that successful substitution of manmade capital for natural resources is slow and limited, and that the necessary technology cannot be organized on cue as the optimists would wish. Following the dictionary distinction between growth and development: to grow means to increase in size by the assiniilation or accretion of materials; to develop means to expand or realize the potentialities of; to bring to a fuller, greater or better state. When something grows it gets quantitatively bigger; when it develops it gets qualitatively better, or at least different. Quantitative 2  growth and qualitative improvement follow different laws. Our planet develops over time without growing. Our economy, a subsystem of the finite and non-growing earth, must eventually adapt to a similat pattem of development without throughput growth. The time for such adaptation is now. An alternative formulation would be to say that physical inputs must cease growing, but that value of output can continue to increase as long as technological development permits. Of course if physical input is Umited, then by the law of conservation of matter-energy, so is physical output. This is equivalent to saying that quantitative growth in throughput is not permitted, but qualitative improvement in services rendered can develop with new technology. In other words we are back to the formulation of development (increasing value of output) without growth (physical throughput constant). Throughput is treated as an aggregate, and clearly some components are more important than others environmentally. For many purposes, energy is the dominant and critical component. Unfortunately, current GNP accounting conventions conflate growth and development, counting both as "economic growth". We sharply distinguish between throughput growth (growth proper) and efficiency improvement (development in the dictionary sense). Once these distinctions are accepted it is reasonable to ask: Can development without throughput growth (sustainable development) cure exsting poverty? Our belief is that it cannot. Qualitative improvement in the efficiency with which resources are used will greatly help, but will not be sufficient to cure poverty. The reduction of throughput intensity per dollar of GNP in some rich countries is all to the good, but means little to poor countries still striving for adequate food, clothing and shelter. Basic necessities have a large and irreducible physical dimension, unlike say information processing. The Brundtland proposal to alleviate poverty by an annual 3% global rise in per capita income translates initially into annual per capita income increments of $633 for USA; $3.6 for Ethiopia; $5.4 for Bangladesh; $7.5 for Nigeria; $10.8 for China and $10.5 for India. By the end of ten years, such growth will have raised Ethiopia's per capita income by $41 - hardly sufficient to dent poverty there - - while that of the USA will have risen by $7257. The greater disparity of international income levels that would result calls into question the desirability of Brundtland's projections. It is neither ethical nor helpful to the environment to expect poor countries to cut or arrest their development, which tends to be highly associated with throughput growth. Therefore the rich countries, which after all are responsible for most of today's environmental damage, and whose . atc.fa =ll ing can sustain halting or even reversing throughput growth, must take the lead in this respect. Poverty reduction will require considerable growth, as well as development, in developing countries. But ecological constraints are real and more growth for the poor must be balanced by negative throughput growth for the rich. Development by the rich must be used to free resources (source and sink functions of the environment) for growth and development so urgently needed by the poor. Large scale transfers to the poorer countries also will be required, especially as the impact of economic stability in rich countries may depress terms of trade and lower economic activity in developing countries. Higher prices for the exports of poorer countries therefore will be required. Most importantly, population stability is essential to reduce the need for growth everywhere, 3  but especially where population growth is highest, i.e in the poor countries. Politically, it is very difficult to face up to the need for income redistribution and population stability. If the concept of sustainable development becomes a verbal formula for glossing over these hash realities, then it will have been a big step backwards. It is in this sense that we, the authors of this volume, are seeling to build on Brundtland before the tempest of conventional political *realisms erodes the foundations that WCED constructed with such care and foresight. Such an agenda wil be exceptionally difficult to implement, and many other issues are involved which are not addressed in this volume, but of which we are acutely aware. Markets, for example, wil have to learn to function without expansion, withcut wars, without wastes and without advertising that encourages waste. Economic policy will have to suppress certain activities in order to allow others to expand, so that the sum total remains within the biophysical budget constraint of a nongrwing throughput. T adds up to a formidable political agenda. That is why exceptional political wisdom and leadership are so urgently required. We acknowledge the constructive reviews of Vinod Dubey and Herman G. Van der Talk Brundtland, G.IL 1989. Global change and our common future. Washington DC., Benjamin Franlin Lecture (2 May). Environment (US) 31: 16-20, 40-43. McNeill, J. 1990. On the economics of susuainable development. Washington DC, US AID, January 23-26 workshop. WCED, 1987. Our common future.The Brundtland Report]. Oxford, Oxford University Press (for) UN World Commission of Environment and Development 393 p. 4  Chapter 1: THE CASE THAT THE WORLD HAS REACHED LIMIMh - Mae pece that current througput th in O gW moomy canot be suaa - Robert Goodiland Mahatwm Gandh [when asked if, after indepenaence, India would attain Briih standards of llvbui' ".... it took BDtain half the resowiaS of the planet to achkwe u prspe*y; how many pJaet wil a coltuy Ake India require .n The aim of this thapter is to present the case that limits to growth have already been reached, that further input growth vwill take the planet further away from sustainability, and that we are rapidly foreclosing options for the future, possibly by overshooting limits (Catton 1982). T* scaapter seeks to convince the reader of the urgent need to convert to a sustainable economy, rather than the related and equally or more important need of poverty alleviation. The political wil to transit to sustainabilit will be mustered only when the need for the trnsition is percei 'e crucal next step - how to muster that political will -- is deferred to a subsequent book. Right at the start, plaudits for Brundtland's heroic achievement: elevating "austainability" as a planetary goal now espoused by practically all nations, the UN family, and the World Bank In July 1989, leaders of the Group of Seven major industrialized nations called fbr the early adption, worldwide, of policies based on sustainable development." The whole world owes Brundtland an enormous debt for this tremendous feat and we admire her political wisdom. This chapter buikd on Brundtland's lead and explores the implications of sustainability. We assume as given that the world is being run unsustainably now - being fuelled by inherited fossil fuels is the best single example. Nonrenewable oil and gas provide 60% of global energy with barely 50 years of proven reserves. Brundt!and said that meeting essential needs requires " a new era of economic growt for nations in which the majonty are poor. The report (WCED, 1987) anticipates ".... a five- to tenfold increase in world industrial output...." Two years later, this "sustainable growth" conclusion was re-emphasized by the Secretary General of the Brundtland Commission: n A fvefold to tenfold increa in economic activity would be required over the next 50 years...." to achieve sustainability (MacNeill, 1989). 2. The Global Eoystem and the Economic Subsystem A single measure -- population times per capita resource consumption -- encapsulates what is needed to achieve sustainabiity. Tis is the scale of the human economic subsstem with respect to that of the global ecosystem on which it depends, and of which it is a part. The global ecoystem is the source of all material inputs feeding the economic subsystem, and is the sink for all its wastes. Population times per capita resource consumption is the total flow -- throughput - of resources from the ecosystem to the economic subsystem, then back to the ecosystem as waste, as dramatized in S  Figue 1. The upper diagram illustrates the bygone era when the economic subsytem was small elat 'e to the size of the global ecosystem The lower diagram depicts a situation much near to today in which the economic subsystem is vety large relative to the global ecosystem Population times per capita resource use is refined by Tinbergen and Hueting (1991), and by Ehrlich and Bhrlich (1990). The global ecosystem's source and sink functions have limited capacity to support the economic subsytem. The imperative, therefore, is to maintain the size of the global economy to within the capacity of the ecosystem to sustain it. Speth (1989) calculates that it took all of human history to grow to the $60-billion swale economy of 1900. Today, the world economy grows by this amount every two year. Unchecked, today's $20 trillion global economy may be five times bigger only one generation or so hence. It seems unlikely that the world can sustain a doubling of the economny. let alone Brundtland's "fie- to ten-fold increase". We feel throughput growth is not the way to reach sustainabilitr, we cannot "grVW" our way into sustainability. The global ecosystem, which is the source of all the resources needed for the economic subsystem, is finite and has limted regenerative and asimilative capacities. It looks ine!itable that the next century will be occupied by double the number of people in the human economy consuiming sources and burdening sinks with their wastes. The global ecosystem is the sink for all he wastes created by the economic subsystem, and this sink has hlited assimative capacity. WheL the economic subsytem was small relative to the global ecosystem (Figure 1; upper), then the sources and sinks were large and limits were irrelevant. Leading tbinkers, such as Ehrlich ani Ehrlich (1990), Hardin (1991), Boulding (1991), Daly (1989, 1990,1991), as well as the Club of Rome (Meadows et al. 1974), have shown for years that the world is no longer "empty", the economic subsystem is large relative to the biosphere, and the capacities of the biosphere's sources and sinks are being stressed (Fgure 1, lower diagram). 3. Localized I mits to Global Lmits This chapter presents the case that the economic subsystem has reached or eceeded mportant source and sink limits. We take as agreed that we have already fouled our nest: practically nowhere in this earth are signs of the human economy absent. From the center of Antarctica to Mount Everest human wastes are obvious and increasing. it is not possible to find asample of ocean water with no sip of the 20 billion tons of human wastes added annualy. PCBs and other persistent toxic chemicals like DDT and heavy metal compounds, have already accumulated throughout the marine ecosvstem. One fifth of the world's population breathes air more poisonous than WHO standards recommend, and an entire generation of Mexco City children may be intellectually stunted by lead poisoning (Brown et al. 1991). Since the Club of Rome's 1972 "Limits to Growth", the constraints have shifted from source limits to sink limits. Source limits are more open to substitution and are more localized. Since then, the cmse has substantially strengthened for limits to throughput growth. There is a wide variety of limits. Some are tractable and are being tackled, such as the CFC phase out under the Montreeal Convention. Other limits are less tractable, such as the massive human appropriation of biomass (see below). The key limit is the smk constraint of fossil energy use. Therefore, the rate of transition to renewables including solar energy, parallels the rate of the transition to sustainability. Here the optimists add the possibility of cheap fusion energy by the year 2050. We are agnostic on 6  technoloy, and want to encourage It by energy taxes (Daly, this volume). Htherto, technolog has only srted to focus on input reduction and even less on sink management, which suggests there is SCope for improvements Land fill sites are becoming harder to find; garbage is shpped thousands of miles from industral to deloping countries in search of unfilled sinks. It has so far proved impossible for the US Nuclear Regulatory Commission to find anywhere to rent a nuclear waste site for US$100 million pa Germany's Kraft-Werk Union signed an agreement with China in July 1987 to buty nulear waste in Mongolia's Gobi desert. These facts prove that landfill sites and toic dumps - aspoct of sinb - - are increasingly hard to fnd, that limits are near. 4. Flist Evidae Hman Blons Appropriation The best evdence that there are other imminent limits is the calulation by Vitousek et aL (1986) that the human economy uses - directly or indimectly - about 40% of the net primary product of terrestrial photosynthesis today. (This figure drops to 25% if the oceans and other aquatic ecosystems are included). And desertification, urban encroachment onto agricultural land, blacktopping, soil erosion and pollution are increasing -- as is the populations search for food This means that in only a single doubling of the world's population (say 35 yeas) we will use 80%, and 100% shortly therafter. As Daly (1991a,b) points out 100% appropriation is ecologically impossible and socially highly undesirable. The world will go from half empty to full in one doubling period, rrpeti of the sink being flled or the source being consumed. Readers refuinig to recognze overfullness that has appropriated 40% for humans aleady should decide when between now and 100% they would be wiling to say "enough'. They should state in advance what evidence they wil require to be convinced. Although this evidence has not been refuted over the last five years, this single study is so stark that we urge prompt corroboration and analysis of the implications. 5. SOownd Evidnc of lAimts: Global Warming The evidence of atmospheric carbon dioxide accumulation are pervasive, as geographical atensive as possible, and unimaginably expensive to cure if allowed to worsen. In addition, they are unambiguously negative and strongly so. There may be a few exceptions, such as plants growing faster in C02-enriched laboratories where water and nutrients are not lImiting. However in the real world, it seems more likely that crop belts will not shift with changing climate, nor will they grow faster because some other factor (eg: suitable soils, water) will become limiting. Tne prodigious North American breadbasket's climate may indeed shift north. but this does not mean the breadbasket will follow because the rich prairie soils will stay put, and Canadian boreal soils and muskeg are very infertle. The second evidence that limits have been exceeded is global warming. 1990 was the wamest year in more than a century of record keeping. Seven of the hottest years on record all occurred in the last. 11 years. The l980s were 1 oF warmer than the 1880s; while 1990 was 1.25